A Little Paranoia Can Help

September 7, 2010

Risks come in many shapes and sizes, but they have one thing in common. You have to identify or imagine them before you can do anything about them. That’s why Andy Grove, one of the founders of Intel Corporation, declared that “only the paranoid survive.”

This is a mindset that many people find unsettling. They find it too pessimistic. Isn’t it better to go through life as an optimist? It is… if you believe all the self-help literature and the late-night infomercials.

The reality though is that success in business (and in life) implies an ability to see things for what they are. In his best seller Good to Great, Jim Collins determined that all turnarounds or significant improvements in fortune start by an ability to “confront the brutal facts (while keeping the faith).” The danger or risk doesn’t go away just because you do like an ostrich and hide your head in the sand. Even more important, there may be risks beyond your knowledge, because they are initially unimaginable or appear so far fetched as to warrant little consideration.

Think of newspapers. They used to be the primary means of information. While all media have struggled against Internet ads, newspapers have had the greatest difficulty and are a disappearing feature in many cities, especially where search engines provide the equivalent to local and classified ads. Although many traditional media saw advertising as the key to Internet business, they certainly didn’t see it coming from such an unexpected direction as online search and companies like Google.

That’s an example of a competitive risk, but there are also others. Moreover, the newspapers provide an example of long-term stasis in the face of change, but movement and the pursuit of opportunities also generate risk and threats. The Deepwater Horizon disaster in the Gulf of Mexico occurred because of a cascade of technical and human risks resulting from BP’s aggressive exploration strategy.

Research in Motion, the makers of the Blackberry, is facing a threat from governments that have security concerns, some of which may be legitimate, but others that are driven more by fear of opposition and dissension. Did the company foresee even a few months ago that its expansion plans for the fastest growing markets in the world could be threatened by the Blackberry’s key selling feature and customer advantage, it’s inherent security? The company appears to have been taken by surprise by this political risk. I think it could have been foreseen and, with suitable prevention and mitigation in place beforehand, the crisis may have been averted.

It’s only by taking a comprehensive approach to risk that companies (and other organizations) can be in a position to exploit change and opportunity. This requires an ability to understand the risks and threats that result as much from action as inaction. It also requires an ability to imagine and qualify unusual or “far out” changes, with their respective probabilities and potential consequences. Finally, companies need to understand their own risk profile as a whole, with the balance of opportunities and risks, as well as their appetite for risk.

If only the paranoid survive, it’s better to be paranoid before the fact than after.

© 2010 Richard Martin. Reproduction and quotes permitted with proper attribution.

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